Second Sentence Of Civil Code Section 1717(a) Precludes Restricted Application Of Mutuality Principle Unless Parties Recite That Counsel Was Involved In Negotiation and Execution Of The Contract

In enacting Civil Code section 1717, the Legislature made it abundantly clear that mutuality principles are to govern interpretation of attorney’s fees clauses such that unilaterally worded provisions are construed as reciprocal in nature.Civ. Code, sec. 1717(a).The broadness of this policy was also confirmed by the second sentence of section 1717(a), which provides that an attorney’s fees clause “shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract.”This second sentence was directly at issue and resulted in a reversal of a lower court decision to deny fees to a prevailing party in Hile v. Clippinger Chevrolet, Case No. B196615 (2d Dist., Div. 8 Sept. 23, 2008) (unpublished).

Hile involved a towing business operator who purchased a new model truck that failed to properly tow automobiles.Repairs and modifications did not cure the problems, with plaintiff suing the truck seller for breach of contract and revocation of acceptance, praying for an award of “attorney fees pursuant to the contract or statute as appropriate.”After determining that the plaintiff was entitled to rescind the contract, the lower court summarily denied plaintiff’s request for a fee award. Plaintiff appealed that denial, and the Second District, Division Eight, in a prior opinion, reversed and remanded to the lower court for purposes of holding a hearing on the fees issue.On remand, the trial court yet again denied the fee motion, ruling that the contract allowed fees only in connection with limited types of breaches, none of which was involved in the case.Plaintiff appealed the fee denial a second time.

The Second District, Division Eight initially observed that the review was de novo because it involved a matter of contractual interpretation and application of section 1717.(Carver v. Chevron U.S.A., Inc., 97 Cal.App.4th 132, 142 (2002).)

Presiding Justice Cooper, writing for a 3-0 panel, also agreed with the trial court that the fees clause in the contract between plaintiff and defendant was limited, only covering breaches such as failing to pay, moving the truck out of the country, transferring it without written permission, and misusing it.The language of the fee clause did not extend to product nonconformity.

However, that was hardly the end of the matter.The second sentence of section 1717(a) prevented upholding the result reached by the lower court.

That sentence was intended to preclude the type of restricted application of fee clauses that occurred below, unless there was compliance with its strict dictates (counsel involvement and recital of same in the contract)--something absent in the case before the appellate panel.Justice Cooper stated that this second sentence of section 1717(a) was enacted to abrogate a case upholding a one-sided fee clause, namely, Sciarotta v. Teaford Custom Remodeling, Inc., 110 Cal.App.3d 444, 446 (1980).Accord, Harbor View Hills Community Assn. v. Torley, 5 Cal.App.4th 343, 348-349 (1992); Myers Building Industries, Ltd. v. Interface Technology, Inc., 13 Cal.App.4th 949. 970 (1993); see also Paul v. Schoellkopf, 128 Cal.App.4th 145 (2005) [discussing the abrogation of Sciarotta].

The end result was that plaintiff was deemed the prevailing party and the cause was remanded to award reasonable attorney’s fees to plaintiff, with the fees to cover its wins at both the trial and appellate levels.